The Hindu Business Line : Govt may be compelled to raise petrol, diesel prices

Increasing pressure
The Indian crude basket, after dropping below $70 a barrel last month, has again moved up.
Government may consider an increase of petrol and diesel prices by Rs 2 a litre and Re 1 per litre respectively; leave out LPG and kerosene.

Our Bureau

New Delhi, Sept. 7 With renewed surge in international crude prices, the Government may be compelled to review the prices of petroleum products after the end of the current session of Parliament next week.

The average price of Indian basket of crude oil during 2007-08 (up to August) has increased to $68.34 per barrel compared to $62.46 during 2006-07.

The Indian crude basket, after dropping below $70 a barrel last month, has again moved up. The basket on Thursday was at $72.94 a barrel. State-owned oil marketing companies — Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation — have been seeking an increase in the prices of four petroleum products — petrol, diesel, PDS kerosene and domestic cooking gas — due to increase in international oil prices.

While the officials in the Petroleum Ministry remained non-committal on whether there would be any revision in the retail prices of petrol and diesel, they are keeping a close watch on the movements of crude prices. A decision on the issue will be taken by the Cabinet. Indications are that the Government may consider an increase of petrol and diesel prices by Rs 2 a litre and Re one per litre respectively. However, given the political sensitivity of mass-consumed cooking fuels LPG and kerosene, the hike may be restricted only to petrol and diesel.

Indian basket

The April to date average of the Indian basket stood at $68.47 a barrel, up from the previous financial year (April 2006-March 2007) average of $62.46 per barrel. The August average stood at $69.03 and the current quarter (July to date) average was $70.96 a barrel. The composition of Indian basket is based on total industry processing of sweet (including indigenous) and sour crude oils and represents Free-on-Board (f.o.b.) prices of average of Oman-Dubai crude oils for sour grade and Brent (dated) for sweet grade in the ratio of 59.8:40.2.

At the current level of international prices, the desired increase in retail selling in price, according to the OMCs was Rs 2.21 per litre on petrol, Rs 4.40 per litre on diesel, PDS kerosene Rs 14.90 per litre and on cooking gas Rs 185 per cylinder.

The OMCs are expected to loose Rs 52,452 crore in revenues this fiscal year for selling petroleum products below the cost price. The Petroleum Ministry has projected a revenue loss of Rs 16,120 crore on kerosene, Rs 11,088 crore on domestic LPG, Rs 6,682 crore on petrol and Rs 18,562 crore on diesel in 2007-08.

Additional revenue

A Re 1 per litre increase in petrol price would give Rs 607-crore additional revenue during the remaining seven months of the fiscal and a similar hike in diesel would give Rs 2,479 crore, while Rs 659 crore would be gained on kerosene.

A Rs 10 per cylinder increase in cooking gas prices would generate Rs 403 crore.

The Ministry has suggested that Government bear half of the remaining under-realisation after the hike through subsidy and oil bonds, while the balance would be met from upstream firms like ONGC, OIL and GAIL.